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Is your small business struggling because of debt? Bankruptcy can be your lifeline. Most business owners who consider bankruptcy assume that they need to file bankruptcy specifically for their business. However, a personal bankruptcy in the form of a Chapter 7 or Chapter 13 often is a better solution. It will eliminate any personal liability you may have for business debts and wipe the slate clean. Once your bankruptcy is over, you can choose to move on with your life, or you can begin business again, this time free from the burden of debt.
You may not be personally liable for business debts if:
• Your business is a corporation
• You are a limited partner
• Your business is an LLC
You will be liable for business debts if:
If you are personally liable for your business debt, creditors can go after you and your assets when your business fails to pay its bills.
It is very common for small business owners to be liable for the debts of their business. Not only are many business owners sole proprietors or general partners, but many business owners who ordinarily would be protected from personal liability for business debts are actually unprotected because of various circumstances that can occur during the ordinary operation of a business.
Some owners of small businesses choose to file bankruptcy even when it doesn’t appear they will be personally liable for business debts. They do this to insulate themselves from potential claims by business creditors against them.
Three chapters of bankruptcy are typically available to the business owner. Each has its advantages and disadvantages.
What effect does Chapter 13 have?
Although most business owners will immediately think of Chapter 11 bankruptcy, Chapter 7 and Chapter 13 are often a much better choice.
A chapter 7 bankruptcy completely eliminates your business debts and your personal debts without spending a dime, and it does so very quickly. It is simple and affordable, and you can start a new business when it’s over. If you can qualify for Chapter 7, it’s usually the best option.
If you don’t qualify for Chapter 7, Chapter 13 is a great alternative because it still eliminates a significant portion of your debt, both business and personal. There will be a payment plan through the court, but it will be a manageable payment amount and for a reasonable period of time; only three to five years.
Chapter 11 does not give you a fresh start, and you end up paying virtually all of your business debts back. It is expensive, complicated, and takes a long time (sometimes 20 years or more). Its only advantage is that it allows you to continue to operate your business. But considering all of the disadvantages, it is often much easier to file another chapter of bankruptcy and start a new business, rather than filing for Chapter 11 bankruptcy.